-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NswXBslQFmFv8X1S8svk08PFRUxcIvu9DFNph7AlM9b9ZMoGHONUu8OGRvTTBune tXcDdugh4zHZfHt2N0oUBg== 0000350846-99-000009.txt : 19990813 0000350846-99-000009.hdr.sgml : 19990813 ACCESSION NUMBER: 0000350846-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUPREME INDUSTRIES INC CENTRAL INDEX KEY: 0000350846 STANDARD INDUSTRIAL CLASSIFICATION: TRUCK & BUS BODIES [3713] IRS NUMBER: 751670945 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08183 FILM NUMBER: 99685553 BUSINESS ADDRESS: STREET 1: 65140 US 33 E STREET 2: PO BOX 237 CITY: GOSHEN STATE: IN ZIP: 46526 BUSINESS PHONE: 2196423070 MAIL ADDRESS: STREET 1: P O BOX 237 STREET 2: 65140 U S 33 EAST CITY: GOSHEN STATE: IN ZIP: 46526 FORMER COMPANY: FORMER CONFORMED NAME: EXPLORATION SURVEYS INC DATE OF NAME CHANGE: 19850813 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-8183 SUPREME INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 75-1670945 (State or other jurisdiction of (I.R.S. Employer Identification incorporation or organization) No.) 65140 U.S. 33 East, P.O. Box 237, Goshen, Indiana 46528 (Address of principal executive offices) Registrant's telephone number, including area code: (219) 642-3070 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock ($.10 Par Value) Outstanding at August 2, 1999 Class A 8,563,848 Class B 1,739,140 The index to Exhibits is at page 16 in the sequential numbering system. Total number of pages: 16. Page 1 of 16 SUPREME INDUSTRIES, INC. CONTENTS Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements: Consolidated Balance Sheets 3 & 4 Consolidated Statements of Income 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7, 8 & 9 Item 2. Management's Discussion and Analysis of 9, 10, 11 Financial Condition and Results of 12 & 13 Operations PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 Index to Exhibits 16 Page 2 of 16 Part I. Financial Information Item 1. Financial Statements Supreme Industries, Inc. and Subsidiaries Consolidated Balance Sheets June 30, December 31, 1999 1998 --------------- --------------- Assets (Unaudited) Current assets: Cash and cash equivalents............... $232,208 $185,424 Accounts receivable, net................ 33,054,356 28,709,559 Inventories............................. 39,065,712 28,792,650 Deferred income taxes................... 1,081,839 1,081,839 Other current assets.................... 1,407,095 1,465,237 --------------- --------------- Total current assets............... 74,841,210 60,234,709 --------------- --------------- Property, plant and equipment, at cost....... 53,189,952 50,030,906 Less, Accumulated depreciation and amortization..................... 20,056,945 18,688,584 --------------- --------------- Property, plant and equipment, net. 33,133,007 31,342,322 --------------- --------------- Intangible assets, net....................... 1,400,421 1,502,076 Other assets................................. 936,367 991,947 --------------- --------------- Total assets....................... $110,311,005 $94,071,054 =============== =============== The accompanying notes are a part of the consolidated financial statements. Page 3 of 16 Supreme Industries, Inc. and Subsidiaries Consolidated Balance Sheets, Concluded June 30, December 31, 1999 1998 --------------- --------------- Liabilities and Stockholders' Equity (Unaudited) Current liabilities: Current maturities of long-term debt.... $5,168,251 $2,014,975 Trade accounts payable.................. 11,988,083 10,235,964 Accrued income taxes.................... 1,255,484 961,628 Other accrued liabilities............... 8,786,938 7,736,198 --------------- --------------- Total current liabilities.......... 27,198,756 20,948,765 Long-term debt............................... 40,035,702 18,303,207 Deferred income taxes........................ 1,333,007 1,333,007 --------------- --------------- Total liabilities.................. 68,567,465 40,584,979 --------------- --------------- Stockholders' equity.......................... 41,743,540 53,486,075 --------------- --------------- Total liabilities and stockholders' equity............................ $110,311,005 $94,071,054 =============== =============== The accompanying notes are a part of the consolidated financial statements. Page 4 of 16 Supreme Industries, Inc. and Subsidiaries Consolidated Statements of Income (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------------ -------------------------- 1999 1998 1999 1998 ----------- ----------- ------------ ------------ Revenues............... $66,485,606 $61,322,192 $122,861,648 $116,815,537 ----------- ----------- ------------ ------------ Costs and expenses: Cost of sales..... 55,654,732 49,605,633 102,489,130 95,726,007 Selling, general and administrative.. 5,563,377 5,289,083 10,718,152 10,235,308 Interest.......... 599,618 489,426 938,622 906,439 ----------- ----------- ------------ ------------ 61,817,727 55,384,142 114,145,904 106,867,754 ----------- ----------- ------------ ------------ Income before income taxes........ 4,667,879 5,938,050 8,715,744 9,947,783 Income taxes............ 1,825,000 2,447,000 3,475,000 4,069,000 ----------- ----------- ------------ ------------ Net income.... $2,842,879 $3,491,050 $5,240,744 $5,878,783 =========== =========== ============ ============ Earnings per share: Basic......... $.26 $.29 $.45 $.49 Diluted....... .25 .29 .45 .48 Shares used in the computation of earnings per share: Basic......... 11,061,863 12,062,554 11,529,466 12,035,913 Diluted....... 11,153,076 12,154,764 11,622,465 12,140,286 The accompanying notes are a part of the consolidated financial statements. Page 5 of 16 Supreme Industries, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, ------------------------------- 1999 1998 --------------- --------------- Cash flows from operating activities: Net income.............................. $5,240,744 $5,878,783 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization. 1,523,976 1,467,972 Loss (gain) on disposal of equipment................... (2,993) 84,087 Changes in operating assets and liabilities............. (11,463,002) (8,284,348) --------------- --------------- Net cash (used in) operating activities....................... (4,701,275) (853,506) --------------- --------------- Cash flows from investing activities: Additions to property, plant and equipment............................. (3,213,338) (3,310,629) Proceeds from disposal of property, plant and equipment................... 3,325 108,900 Decrease in other assets................ 55,580 39,464 --------------- --------------- Net cash (used in) investing activities....................... (3,154,433) (3,162,265) --------------- --------------- Cash flows from financing activities: Proceeds from revolving line of credit and other long-term debt........... 67,070,742 50,996,113 Repayments of revolving line of credit and other long-term debt........... (42,184,971) (47,056,658) Proceeds from exercise of stock options. --- 114,101 Acquisiton of treasury stock............ (16,983,279) --- --------------- --------------- Net cash provided by financing activities....................... 7,902,492 4,053,556 --------------- --------------- Increase in cash and cash equivalents........ 46,784 37,785 Cash and cash equivalents, beginning of period..................................... 185,424 159,044 --------------- --------------- Cash and cash equivalents, end of period..... $232,208 $196,829 =============== =============== Noncash investing and financing activities: Class A Common Stock exchanged in exercise of stock options (12,843 shares)............................... --- 185,950 The accompanying notes are a part of the consolidated financial statements. Page 6 of 16 SUPREME INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - BASIS OF PRESENTATION AND OPINION OF MANAGEMENT The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all of the information and financial statement disclosures necessary for a fair presentation of consolidated financial position, results of operations and cash flows in conformity with generally accepted accounting principles. In the opinion of management, the information furnished herein includes all adjustments necessary to reflect a fair statement of the interim periods reported. All adjustments are of a normal and recurring nature. The December 31, 1998 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. NOTE B - INVENTORIES Inventories, which are stated at the lower of cost or market with cost determined on the first-in first-out method, consist of the following: June 30, December 31, 1999 1998 ------------ ------------ Raw materials.................$ 25,754,147 $ 18,419,217 Work-in-progress.............. 5,759,124 4,154,914 Finished goods................ 7,552,441 6,218,519 ------------ ------------ $ 39,065,712 $ 28,792,650 ============ ============ The valuation of raw materials, work-in-progress and finished goods inventories at interim dates is based upon a gross profit percentage method and bills of materials. The Company has historically had favorable and unfavorable adjustments in the third and fourth quarters resulting from the annual physical inventories. The Company is continuing to refine its costing procedures for valuation of interim inventories in an effort to minimize the annual book to physical inventory adjustments. NOTE C - INCOME TAXES The effective income tax rate for the three months ended June 30, 1999 was 39.1% compared to 41.2% for the three months ended June 30, 1998. The effective tax rate for the six months ended June 30, 1999 was 39.9% compared to 40.9% for the six months ended June 30, 1998. The decrease in the effective tax rate in both the 1999 periods is a result of pretax losses in 1998 of the Honduran hardwood flooring facility (closed during the 1998 fourth quarter) that were not recognized in computing the U.S. tax liability. Page 7 of 16 NOTE D - EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share gives effect to all potentially dilutive securities that were outstanding during the period. The weighted average number of shares of common stock used in the Company's computation of diluted earnings per share are as follows: Three Months Six Months Ended June 30, Ended June 30, -------------- -------------- 1999 1998 1999 1998 ---- ---- ---- ---- Weighted average number of shares outstanding (used in computation of basic earnings per share) 11,062 12,063 11,529 12,036 Effect of dilutive securities: Options and warrants 91 92 93 104 Diluted shares outstanding (used in computation of diluted earnings per share) 11,153 12,155 11,622 12,140 The computations of the number of common shares used in the determination of basic and diluted earnings per share give retroactive recognition to the 5% common stock dividend paid on July 19, 1999 (see Note F). NOTE E - STOCK REPURCHASE On April 12, 1999, the Company announced an offer to its stockholders to acquire up to 2,000,000 shares of its Class A and Class B Common Stock at a cash purchase price not greater than $10.00 per share nor less than $8.75 per share. The Company purchased 1,688,823 shares at $10.00 per share through the offer. To finance the stock repurchase the Company borrowed $17,056,000 repayable quarterly in equal installments of $609,143 through May 11, 2004 when the entire remaining principal amount is due. The Company is also required to make an additional annual principal payment equal to 20% of the preceding year's net income which exceeds $5,000,000 within 105 days after December 31. The additional principal payment can not exceed $1,000,000 in any year. Concurrently the Company entered into an interest rate swap agreement for the entire $17,056,000 that fixes the interest rate at 6.9% over the term of the loan. Page 8 of 16 NOTE F - STOCK DIVIDEND On June 30, 1999, the Company's Board of Directors declared a 5% common stock dividend payable on July 19, 1999 to stockholders of record on July 12, 1999. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations Revenues for the quarter ended June 30, 1999 rose $5.2 million to $66.5 million from $61.3 million for the quarter ended June 30, 1998. Revenues for the six months ended June 30, 1999 rose $6.1 million to $122.9 million from $116.8 million for the six months ended June 30, 1998. This growth is primarily attributed to the Company's dry freight and Spartan product lines. The Company would have experienced an even stronger second quarter as approximately $10 million in fleet orders were delayed until the third quarter. The delays were caused by a combination of extremely tight labor conditions, chassis delays and late specification changes on certain large fleet orders. Gross profit declined to 16.3% for the three months ended June 30, 1999 from 19.1% for the comparable prior year period. Gross profit for the six months ended June 30, 1999 was 16.6% compared to 18.1% for the six months ended June 30, 1998. The Company has experienced increased labor costs for both the three months and six months ended June 30, 1999. These costs are attributed to the very tight and extremely competitive labor environment particularly at its Indiana operations where the unemployment rate has been as low as 1.6%. Labor turnover and training cost have also hampered productivity. Material cost was relatively unchanged for the quarter ended June 30, 1999 when compared to the quarter ended June 30, 1998 and was down slightly for the six months ended June 30, 1999 when compared to the comparable prior year period. Overhead expenses were up for both the quarter and six months ended June 30, 1999 when compared to the prior year comparable periods. It is anticipated that overhead expenses will decline as a percentage of revenues when the Company ships the delayed fleet orders discussed earlier. Page 9 of 16 Selling, general and administrative expenses as a percentage of revenues were relatively unchanged for the three months and six months ended June 30, 1999 when compared to the comparable prior year periods. Interest expense was up slightly to .9% for the three months ended June 30, 1999 compared to .8% of revenues for the comparable prior year period. The increase in the quarter related to the $17.1 million term loan used to finance the Company's stock repurchase. Interest expense for the six months ended June 30, 1999 and June 30, 1998 was .8% of revenues. Interest expense did not increase in the six months ended June 30, 1999 as the term loan was only outstanding for the last 43 days of the period. The Company's effective income tax rate was 39.1% for the three months ended June 30, 1999 and 39.9% for the six months ended June 30, 1999. This compares to 41.2% and 40.9% for the comparable prior year periods. The effective income tax rate declined in both 1999 periods due to pretax losses in 1998 of the Company's Honduran hardwood facility that were not deductible for U.S. income tax purposes in the prior year periods. Net income was $2.8 million for the quarter ended June 30, 1999 and $3.5 million for the quarter ended June 30, 1998. This resulted in diluted earnings per share of $.25 and $.29, respectively. For the six months ended June 30, 1999, net income was $5.2 million compared to $5.9 million for the six months ended June 30, 1998. This resulted in diluted earnings per share of $.45 and $.48, respectively. Liquidity and Capital Resources Funds available under the Company's revolving credit agreement were adequate to finance operations and provide for capital expenditures during the six months ended June 30, 1999. Net income and depreciation and amortization continue to be the most significant components of operating cash flow. The increase of $10.3 million in inventories and $4.3 million in accounts receivable were the most significant uses of operating cash flows during the period. The increase in both inventories and receivables are related to increased business in the quarter when compared to last year. Inventories should decline as the Company delivers approximately $10 million in delayed fleet orders in the third quarter. The Company spent $3.2 million on capital expenditures during the six months ended June 30, 1999. Major capital projects in the period are expansions at the Ligonier, Indiana, Pennsylvania and California manufacturing operations. The Company also purchased a manufacturing facility in Griffin, Georgia to increase capacity in the Southeast. In addition, the Company has a corporate office facility under construction. The Company plans to purchase the North Carolina manufacturing facility it currently leases for $2.1 million in the third quarter. Page 10 of 16 The principal financing activity during the quarter ended June 30, 1999 was a $17.1 million 5 year term loan to finance the purchase of 1,688,823 shares of Class A Common Stock in connection with the Dutch Auction offer that expired May 10, 1999. The loan requires equal quarterly installments of $609,143 through May 11, 2004 with the remaining principal due at that time. In addition, the Company is required to make an annual prepayment of up to $1 million if the Company's net income exceeds $5 million. The prepayment is due 105 days after December 31. In connection with the term loan the Company entered an interest rate swap agreement that fixed the interest rate at 6.9% over the life of the loan. The other significant financing activity during the quarter was the use of the Company's revolving credit agreement to finance operations and capital expenditures. The Company anticipates that cash flows from operations and funds available under the Company's revolving credit agreement will be sufficient to meet the Company's cash needs during 1999. Year 2000 The Company began preparation for the Year 2000 issues during 1996. An independent consulting group was engaged to conduct a complete analysis of the Company's system and operating requirements. After review and approval by management, this analysis formed the basis for a request for quotation that was sent to several major software providers. The final decision was made on the strength of the manufacturing software combined with the quality and level of expertise the software provider could furnish. The software purchased is Year 2000 compliant. The total cost of the operating software and consulting fees is approximately $1,000,000. In addition the Company has spent $200,000 on hardware upgrades. The expenditures were funded from operating activities combined with funds available under the Company's revolving credit agreement. The majority of the costs were incurred during 1998 and the Company does not anticipate significant additional expenditures. The Company's goal is not only to be able to process transactions in the Year 2000, but also to significantly improve its overall information systems. When fully implemented the Company will have more detailed operating and financial information by facility, product line and customer. For this purpose the project was divided into two phases. Phase I provides Year 2000 compliance and Phase II develops the system and procedures necessary to provide the more meaningful operating and financial information. Phase II will be an ongoing project. Page 11 of 16 The Company has completed the assessment and testing phase of its Year 2000 project and is currently in the implementation phase. Based on the results of the successful implementation of the Company's Year 2000 compliant software at six of its eight operations the Company believes that all of its operating locations will be fully Year 2000 compliant by October 1, 1999. The Company has two remaining operations to be converted to the new Year 2000 compliant operating software. They are on schedule to be implemented on September 1 and October 1, 1999. The Company has developed a contingency plan that would enable it to use its existing software after December 31, 1999. The Company has the ability to reprogram dates in its existing financial software. The software would then act as if it were in a year other than 1999 enabling it to continue to process transactions. The Company's production facilities do not rely on the Company's financial software for the ability to produce products. The Company has not pursued this alternative plan as it has successfully implemented six of its eight facilities on Year 2000 compliant software. The remaining two facilities will use the identical software the other six are currently operating on. The Company's major suppliers of raw materials used in the Company's products have indicated that they are Year 2000 compliant. The raw materials used in the Company's products are commodity in nature and are readily available across the country from a large number of suppliers. The Company does not believe it will have difficulty obtaining raw materials because of established relations with multiple sources for its raw materials and the fact that they are readily available from a large number of sources. The Company also believes there is not significant risk from the failure of its customers to become Year 2000 compliant because of the large number of active accounts and the fact that no single account is more than 6% of revenues. The Company's products are sold direct to large users; there are approximately 85 truck distributors and 37 bus distributors as well as approximately 500 truck dealers throughout the country. The Company believes the worst case scenario relating to Year 2000 issues would be the disruption or unavailability of utility services. The Company also believes that this possibility is remote. Additionally, the Company's seven manufacturing plants and eight distribution facilities are all served by different utility companies and it is unlikely that all would suffer from a Year 2000 problem. As noted in the next section, "Forward Looking Statements", a major risk factor for the Company is the availability of chassis. The Company's major sources of chassis have indicated that they are Year 2000 compliant and that their chassis are also Year 2000 compliant. Page 12 of 16 Forward-Looking Statements This report contains forward-looking statements, other than historical facts, which reflect the view of the Company's management with respect to future events. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that the expectations reflected in such forward-looking statements are reasonable, and it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from such expectations include, without limitation, limitations on the availability of chassis on which the Company's product is dependent, availability of raw materials, severe interest rate increases and the Company's and its suppliers and customers ability to make its operating and financial systems Year 2000 compliant. The Company assumes no obligation to update the forward-looking statements or to update the reasons actual results could differ from those contemplated by such forward-looking statements. Page 13 of 16 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a) Exhibits: Exhibit 27 - Financial Data Schedule b) Reports on Form 8-K: None Page 14 of 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SUPREME INDUSTRIES, INC. DATE: August 12, 1999 BY: /s/ROBERT W. WILSON Robert W. Wilson Executive Vice President, Treasurer, Chief Financial Officer and Director (Principal Financial and Accounting Officer) (Signing on behalf of the Registrant and as Principal Financial Officer.) Page 15 of 16 SUPREME INDUSTRIES, INC. FORM 10-Q INDEX TO EXHIBITS Sequential Number Assigned Numbering System in Regulation S-K Page Number Item 601 Description of Exhibit of Exhibit (2) No exhibit. (3) No exhibit. (4) No exhibit. (10) No exhibit. (15) No exhibit. (18) No exhibit. (19) No exhibit. (22) No exhibit. (23) No exhibit. (24) No exhibit. (27) Financial data schedule. (99) No exhibit. Page 16 of 16 EX-27 2
5 6-MOS DEC-31-1999 JUN-30-1999 232,208 0 33,660,356 606,000 39,065,712 74,841,210 53,189,952 20,056,945 110,311,005 27,198,756 40,035,702 0 0 1,039,148 0 110,311,005 122,861,648 122,861,648 102,489,130 102,489,130 10,718,152 0 938,622 8,715,744 3,475,000 5,240,744 0 0 0 5,240,744 .45 .45
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